Marketing Discussion

Read the Chapter 13 I uploaded and aswer: 

This question pertains to what we’ve talked about in Chapter 13 – Product Differentiation. Product differentiation is essential to the branding process. Think of your favorite store or website. What are the product/service differentiators that make it your top choice?

You will be expected to read the questions, conduct initial research, and contribute to the discussion. In-depth discussion questions include use of sources from outside reading and from the textbook. The length should be more than half a page.

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Marketing planning begins with formulating  an offering to meet target customers’ needs or wants. The customer will judge the offering on three basic elements: product features and quality, service mix and quality, and price (see Figure 13.1). In this chapter we examine product, in Chapter 14, services, in Chapter 15, new products and services, and in Chapter 16, price. All three elements—products, services, and pricing—must be meshed into a competitively attractive market offering.

At the heart of a great brand is a great product. To achieve market leadership, firms  must offer products and services of superior quality that provide unsurpassed customer value. Lexus has conquered the luxury car market in the United States and elsewhere, in part due to a relentless focus on product and service quality.1

Setting Product Strategy

13

Since its inception in 1989, Lexus has emphasized top-notch product quality and customer care, as reflected by its long-time slogan, “The Relentless Pursuit of Perfection.” At one point, in response to customer complaints over minor problems with its LS 400, the company sent technicians to each owner’s home to fix the vehicles for free. As part of its “Lexus Covenant,” it has vowed to “have the finest dealer network in the industry, and treat each customer as we would a guest in our own

home.” To this end, Lexus built its dealership framework from the ground up, hand-picking dealers committed to its promise to provide an exceptional experience to customers, a system competitors acknowledge is the industry ideal. The company offers a full product line anchored by its flagship LS sedan, as well as its GS sports coupe, RX SUVs, and ES midsize car. It is consistently highly rated in the Luxury Institute’s annual Luxury Consumer Experience sur- veys, bolstered by strong dealership experience. In addition, J. D. Power and Associates has ranked Lexus the “most dependable” automotive brand 16 times since 1995, and the company consistently ranks above the industry average in customer retention. With its average buyer in his or her mid-50s, Lexus has set its sights on attracting younger buyers by emphasizing more aggressive styling, handling dynamics, and driver engagement. A new marketing initia- tive uses television advertising to link the brand and the LS sedan to a lavish, cool lifestyle. Social media and other promotions and events also create novel customer experiences around food, fashion, enter- tainment, and travel.

Product Characteristics and Classifications Many people think a product is tangible, but technically a QSPEVDU is anything that can be offered to a market to satisfy a want or need, including physical goods, services, experiences, events, persons, places, properties, organi- zations, information, and ideas.

Product LeveLs: the customer-vaLue hIerarchY In planning its market offering, the marketer needs to address five product levels (see Figure 13.2).2 Each level adds more customer value, and together the five constitute a DVTUPNFS�WBMVF�IJFSBSDIZ�

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Differentiation arises and competition increasingly occurs on the basis of product augmentation. Each augmen- tation adds cost, however, and augmented benefits soon become expected benefits and necessary points-of-parity in the category. If today’s hotel guests expect large-screen HD TVs, wireless Internet access, and a fully equipped fitness center, competitors must search for still other features and benefits to differentiate themselves.

As some companies raise the price of their augmented product, others offer a stripped-down version for less. Thus, alongside the growth of expensive luxury hotels such as Four Seasons and Ritz-Carlton, we see lower-cost discount hotels and motels emerge such as Motel 6 and Comfort Inn, catering to clients who want simply the basic product. Marketers must be sure, however, that consumers not see lower quality or limited capability versions as unfair.3

Great companies make great products and services, as evident by Lego.4

LEGO LEGO may have been one of the first mass-customized brands. Every child who has ever had a set of the Danish company’s most basic blocks has built his or her own unique creations with it, brick by plastic brick. Although LEGO defines itself as being in the “business of play,” parents like the idea of buying LEGO’s products as a means of also enhancing their children’s motor skills, creativity, and other cognitive capabilities. Some bricks and systems are exactly the same as 50 years ago, but the company is always developing new product offerings. Popular play sets tied in with the Pirates of the Caribbean and Star Wars film franchises also include video games. LEGO Design byME lets customers design, share, and build their own custom products by downloading free Digital Designer 3.0 software. The creations that result can exist—and be shared with other enthusiasts—solely online, or, if customers want to build them, the software tabulates the pieces required and sends an order to LEGO’s Enfield, Connecticut, warehouse. Customers can request step-by-step build- ing guide instructions and even design their own box to store the pieces. The success of The LEGO Movie in 2014 further underscored the widespread popularity of the brand.

Attractiveness of the market

offering

Services mix and quality

Product features

and quality

Value-based prices

| Fig. 13.1 |

Components of the Market Offering

t� 5IF�GVOEBNFOUBM�MFWFM�JT�UIF�DPSF�CFOFGJU� the service or benefit the customer is really buying. A hotel guest is buying rest and sleep. The purchaser of a drill is buying holes. Marketers must see themselves as benefit providers.

t� “U�UIF�TFDPOE�MFWFM �UIF�NBSLFUFS�NVTU�UVSO�UIF�DPSF�CFOFGJU�JOUP�B�CBTJD�QSPEVDU� Thus a hotel room includes a bed, bathroom, towels, desk, dresser, and closet.

t� “U�UIF�UIJSE�MFWFM �UIF�NBSLFUFS�QSFQBSFT�BO�FYQFDUFE�QSPEVDU a set of attributes and conditions buy- ers normally expect when they purchase this product. Hotel guests minimally expect a clean bed, fresh towels, working lamps, and a relative degree of quiet.

t� “U�UIF�GPVSUI�MFWFM �UIF�NBSLFUFS�QSFQBSFT�BO�BVHNFOUFE�QSPEVDU that exceeds customer expecta- tions. In developed countries, brand positioning and competition take place at this level. In devel- oping and emerging markets such as India and Brazil, however, competition takes place mostly at the expected product level.

t� “U�UIF�GJGUI�MFWFM�TUBOET�UIF�QPUFOUJBM�QSPEVDU which encompasses all the possible augmentations and transformations the product or offering might undergo in the future. Here companies search for new ways to satisfy customers and distinguish their offering.

Timeless toy manufacturer Lego constantly innovates so that its brand stays relevant with kids of all ages.

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Product cLassIfIcatIons Marketers classify products on the basis of durability, tangibility, and use (consumer or industrial). Each type has an appropriate marketing-mix strategy.5

DURABILITY AND TANGIBILITY Products fall into three groups according to durability and tangibility:

��� /POEVSBCMF�HPPET are tangible goods normally consumed in one or a few uses, such as beer and shampoo. Because these goods are purchased frequently, the appropriate strategy is to make them available in many locations, charge only a small markup, and advertise heavily to induce trial and build preference.

��� %VSBCMF�HPPET are tangible goods that normally survive many uses: refrigerators, machine tools, and clothing. They normally require more personal selling and service, command a higher margin, and require more seller guarantees.

��� 4FSWJDFT are intangible, inseparable, variable, and perishable products that normally require more quality con- trol, supplier credibility, and adaptability. Examples include haircuts, legal advice, and appliance repairs.

CONSUMER-GOODS CLASSIFICATION When we classify the vast array of consumer goods on the basis of shopping habits, we distinguish among convenience, shopping, specialty, and unsought goods.

The consumer usually purchases DPOWFOJFODF� HPPET frequently, immediately, and with minimal effort. Examples include soft drinks, soaps, and newspapers. 4UBQMFT are convenience goods consumers purchase on a regular basis. A buyer might routinely purchase Heinz ketchup, Crest toothpaste, and Ritz crackers. *NQVMTF� HPPET are purchased without any planning or search effort, like candy bars and magazines. &NFSHFODZ�HPPET are purchased when a need is urgent—umbrellas during a rainstorm, boots and shovels during the first winter snow. Manufacturers of impulse and emergency goods will place them where consumers are likely to experience an urge or compelling need to purchase.

4IPQQJOH�HPPET are those the consumer characteristically compares on such bases as suitability, quality, price, and style. Examples include furniture, clothing, and major appliances. )PNPHFOFPVT�TIPQQJOH�HPPET are similar in quality but different enough in price to justify shopping comparisons. )FUFSPHFOFPVT�TIPQQJOH�HPPET differ in product features and services that may be more important than price. The seller of heterogeneous shopping goods carries a wide assortment to satisfy individual tastes and trains salespeople to inform and advise customers.

4QFDJBMUZ�HPPET have unique characteristics or brand identification for which enough buyers are willing to make a special purchasing effort. Examples include cars, audio-video components, and men’s suits. A Mercedes is a specialty good because interested buyers will travel far to buy one. Specialty goods don’t require comparisons; buyers invest time only to reach dealers carrying the wanted products. Dealers don’t need convenient locations, though they must let prospective buyers know where to find them.

6OTPVHIU�HPPET are those the consumer does not know about or normally think of buying, such as smoke detectors. Other classic examples are life insurance, cemetery plots, and gravestones. Unsought goods require advertising and personal-selling support.

Potentia l product

Aug mented product

Exp ected product

Core benefit

Ba sic product

| Fig. 13.2 |

Five Product Levels

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INDUSTRIAL-GOODS CLASSIFICATION We classify industrial goods in terms of their relative cost and the way they enter the production process: materials and parts, capital items, and supplies and business services. .BUFSJBMT�BOE�QBSUT are goods that enter the manufacturer’s product completely. They fall into two classes: raw materials and manufactured materials and parts. 3BX�NBUFSJBMT in turn fall into two major groups: GBSN� QSPEVDUT (wheat, cotton, livestock, fruits, and vegetables) and OBUVSBM� QSPEVDUT (fish, lumber, crude petroleum, iron ore).

Farm products are supplied by many producers, who turn them over to marketing intermediaries, who provide assembly, grading, storage, transportation, and selling services. The perishable and seasonal nature of farm products gives rise to special marketing practices, whereas their commodity character results in relatively little advertising and promotional activity. At times, commodity groups will launch campaigns to promote their product— potatoes, cheese, and beef. Some producers brand their products—Dole salads, Mott’s apples, and Chiquita bananas.

Natural products are limited in supply. They usually have great bulk and low unit value and must be moved from producer to user. Fewer and larger producers often market them directly to industrial users. Because users depend on these materials, long-term supply contracts are common. The homogeneity of natural materials limits the amount of demand-creation activity. Price and reliable delivery are the major factors influencing the selection of suppliers.

.BOVGBDUVSFE�NBUFSJBMT�BOE�QBSUT fall into two categories: component materials (iron, yarn, cement, wires) and component parts (small motors, tires, castings). $PNQPOFOU�NBUFSJBMT are usually fabricated further—pig iron is made into steel, and yarn is woven into cloth. The standardized nature of component materials usually makes price and supplier reliability key purchase factors. $PNQPOFOU�QBSUT enter the finished product with no further change in form, as when small motors are put into vacuum cleaners and tires are put on automobiles. Most manufactured materials and parts are sold directly to industrial users. Price and service are major marketing considerations, with branding and advertising less important.

$BQJUBM�JUFNT are long-lasting goods that facilitate developing or managing the finished product. They fall into two groups: installations and equipment. *OTUBMMBUJPOT consist of buildings (factories, offices) and heavy equipment (generators, drill presses, mainframe computers, elevators). Installations are major purchases. They are usually bought directly from the producer, whose sales force includes technical staff, and a long negotiation precedes the typical sale. Producers must be willing to design to specification and to supply postsale services. Advertising is much less important than personal selling.

&RVJQNFOU includes portable factory equipment and tools (hand tools, lift trucks) and office equipment (desk- top computers, desks). These types of equipment don’t become part of a finished product. They have a shorter life than installations but a longer life than operating supplies. Although some equipment manufacturers sell direct, more often they use intermediaries because the market is geographically dispersed, buyers are numerous, and orders are small. Quality, features, price, and service are major considerations. The sales force tends to be more important than advertising, though advertising can be used effectively.

4VQQMJFT�BOE�CVTJOFTT�TFSWJDFT are short-term goods and services that facilitate developing or managing the finished product. Supplies are of two kinds: NBJOUFOBODF� BOE� SFQBJS� JUFNT (paint, nails, brooms) and PQFSBUJOH� TVQQMJFT (lubricants, coal, writing paper, pencils). Together, they go under the name of MRO goods. Supplies are the equivalent of convenience goods; they are usually purchased with minimum effort on a straight-rebuy basis. They are normally marketed through intermediaries because of their low unit value and the great number and geo- graphic dispersion of customers. Price and service are important considerations because suppliers are standardized and brand preference is often not high.

Business services include NBJOUFOBODF� BOE� SFQBJS� TFSWJDFT (window cleaning, copier repair) and CVTJOFTT� �BEWJTPSZ�TFSWJDFT (legal, management consulting, advertising). Maintenance and repair services are usually supplied under contract by small producers or from the manufacturers of the original equipment. Business advisory services are usually purchased on the basis of the supplier’s reputation and staff.

Differentiation To be branded, products must be differentiated. At one extreme are products that allow little variation: chicken, aspirin, and steel. Yet even here some differentiation is possible: Perdue chickens, Bayer aspirin, and India’s Tata Steel have carved out distinct identities in their categories. Procter & Gamble makes Tide, Cheer, and Gain laundry detergents, each with a separate brand identity. At the other extreme are products capable of high

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differentiation, such as automobiles, commercial buildings, and furniture. Here the seller faces an abundance of differentiation possibilities.

As Chapter 10 described, well-differentiated products can create significant competitive advantages. Intuitive Surgical sells million-dollar robotic systems for operating rooms. Watching a high-definition video feed from a camera inside the patient, surgeons use a joystick, pedals, and a robotic arm with tiny scalpels and needles to per- form minimally invasive cardiac and urological procedures. One analyst said of Intuitive Surgical in 2010, “In our view, they’ve got a decade’s worth of technological lead.”6

Means for differentiation include form, features, performance quality, conformance quality, durability, reli- ability, repairability, and style.7 Design has become an increasingly important differentiator, and we discuss it separately later in the chapter.

Product dIfferentIatIon FORM Many products can be differentiated in GPSN—the size, shape, or physical structure of a product. Consider the many possible forms of aspirin. Although essentially a commodity, it can be differentiated by dosage, size, shape, color, coating, or action time.

FEATURES Most products can be offered with varying GFBUVSFT that supplement their basic function. A company can identify and select appropriate new features by surveying recent buyers and then calculating DVTUPNFS�WBMVF versus DPNQBOZ�DPTU for each potential feature. Marketers should consider how many people want each feature, how long it would take to introduce it, and whether competitors could easily copy it.8

To avoid “feature fatigue,” the company must prioritize features and tell consumers how to use and benefit from them.9 Marketers must also think in terms of feature bundles or packages. Auto companies often manufacture cars at several “trim levels.” This lowers manufacturing and inventory costs. Each company must decide whether to offer feature customization at a higher cost or a few standard packages at a lower cost.

PERFORMANCE QUALITY Most products occupy one of four performance levels: low, average, high, or superior. 1FSGPSNBODF�RVBMJUZ is the level at which the product’s primary characteristics operate. Quality is growing increasingly important for differentiation as companies adopt a value model and provide higher quality for less money. Firms should design a performance level appropriate to the target market and competition, however, not necessarily the highest level possible. They must also manage performance quality through time. Continuously improving the product can produce high returns and market share; failing to do so can have negative consequences.

MErcEdEs-BEnz From 2003 to 2006, Mercedes-Benz endured one of the most painful stretches in its 127-year history. The company saw its reputation for stellar quality take a beating in J. D. Power and other surveys, and BMW surpassed it in global sales. To recoup, a new management team reorganized around functional elements—motors, chassis, and electronic systems—instead of model lines. Engineers now begin testing electronic systems a year earlier and put each new model through 10,000 diagnostics that run 24 hours a day for three weeks. Mercedes-Benz also tripled its number of prototypes for new designs, allowing engineers to drive them 3 million miles before production. With these and other changes, the number of flaws in the company’s cars dropped 72 percent from their 2002 peak, and warranty costs decreased 25 per- cent. As an interesting side effect, Mercedes-Benz dealers have had to contend with a sizable drop in their repair and service businesses! The challenge now is to match the impressive levels of quality and reliability set by Japanese luxury foes.10

CONFORMANCE QUALITY Buyers expect a high DPOGPSNBODF�RVBMJUZ the degree to which all produced units are identical and meet promised specifications. Suppose a Porsche 911 is designed to accelerate to 60 miles per hour within 10 seconds. If every Porsche 911 coming off the assembly line does this, the model is said to have high conformance quality. A product with low conformance quality will disappoint some buyers. Firms thoroughly test finished products to ensure conformance. Although men account for almost three-quarters of the world’s beer sales, SABMiller found that women were actually more sensitive to levels of flavor in beer and thus were better product testers.11

DURABILITY %VSBCJMJUZ a measure of the product’s expected operating life under natural or stressful conditions, is a valued attribute for vehicles, kitchen appliances, and other durable goods. The extra price for

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durability must not be excessive, however, and the product must not be subject to rapid technological obsolescence, as personal computers, televisions, and cell phones have sometimes been.

RELIABILITY Buyers normally will pay a premium for more reliable products. 3FMJBCJMJUZ is a measure of the probability that a product will not malfunction or fail within a specified time period. Maytag has an outstanding reputation for creating reliable home appliances. Its long-running “Lonely Repairman” ad campaign was designed to highlight that attribute.

REPAIRABILITY 3FQBJSBCJMJUZ measures the ease of fixing a product when it malfunctions or fails. Ideal repairability would exist if users could fix the product themselves with little cost in money or time. Some products include a diagnostic feature that allows service people to correct a problem over the telephone or advise the user how to correct it. Many computer hardware and software companies offer technical support over the phone, by fax or e-mail, or via real-time chat online.

STYLE 4UZMF describes the product’s look and feel to the buyer and creates distinctiveness that is hard to copy. Car buyers pay a premium for Jaguars because of their extraordinary looks. Aesthetics play a key role for such brands as Apple computers, Godiva chocolate, and Harley-Davidson motorcycles.12 Strong style does not always mean high performance, however. A car may look sensational but spend a lot of time in the repair shop.

CUSTOMIZATION As Chapter 9 described, customized products and marketing allow firms to be highly relevant and differentiating by finding out exactly what a person wants—and doesn’t want—and delivering on that. Online retailers such as Zazzle and CafePress allow users to upload images and create their own clothing and posters or buy merchandise created by other users. NikeiD, which allows customers to personalize and design their own shoes and clothing either online or in store at NikeiD Studios, now generates hundreds of millions of dollars in revenue.13

The demand for customization is certainly there. One Forrester study found that more than one-third of U.S. online consumers were interested in customizing product features or in purchasing build-to-order products that use their specifications. And companies have responded: M&M’s allows you to print specialized messages on your candies; Pottery Barn Kids allows you to personalize a children’s book; and for $2,000 or so, Burberry allows you to select the fabric, color, style, and five other features for your own personalized trench coat.14

servIces dIfferentIatIon When the physical product cannot easily be differentiated, the key to competitive success may lie in adding val- ued services and improving their quality. Rolls-Royce PLC has ensured its aircraft engines are in high demand by continuously monitoring their health for 1,300 airplane engines around the world through live satellite feeds. Under its TotalCare and CorporateCare programs, airlines pay Rolls a fee for every hour an engine is in flight, and Rolls assumes the risks and costs of downtime and repairs.15

After experiencing some declines in product quality, Mercedes-Benz changed how it made and tested its cars, with positive results.

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The main service differentiators are ordering ease, delivery, installation, customer training, customer consult- ing, maintenance and repair, and returns.

ORDERING EASE 0SEFSJOH�FBTF describes how easy it is for the customer to place an order with the company. Baxter Healthcare supplies hospitals with computer terminals through which they send orders directly to the firm. Many financial service institutions offer secure online sites to help customers get information and complete transactions more efficiently.

DELIVERY %FMJWFSZ refers to how well the product or service is brought to the customer, including speed, accuracy, and care throughout the process. Today’s customers have grown to expect speed: pizza delivered in half an hour, eyeglasses made in 60 minutes, cars lubricated in 15 minutes. Many firms have computerized RVJDL� SFTQPOTF� TZTUFNT (QRS) that link the information systems of their suppliers, manufacturing plants, distribution centers, and retailing outlets to improve delivery.

Cemex, a giant cement company based in Mexico, has transformed its business by promising to deliver concrete faster than pizza, equipping every truck with a global positioning system (GPS) so dispatchers know its real-time location. Its 24/7 LOAD service program guarantees delivery within a 20-minute window, providing important flexibility in an industry where delays are costly but common.16

INSTALLATION *OTUBMMBUJPO refers to the work done to make a product operational in its planned location. Ease of installation is a true selling point for technology novices and for buyers of complex products like heavy equipment.

CUSTOMER TRAINING $VTUPNFS� USBJOJOH helps the customer’s employees use the vendor’s equipment properly and efficiently. General Electric not only sells and installs expensive X-ray equipment in hospitals, it also gives users extensive training. McDonald’s requires its new franchisees to attend Hamburger University in Oak Brook, Illinois, for two weeks to learn how to manage the franchise properly.

CUSTOMER CONSULTING $VTUPNFS�DPOTVMUJOH includes data, information systems, and advice services the seller offers to buyers. Technology firms such as IBM, Oracle, and others have learned that such consulting is an increasingly essential—and profitable—part of their business.

MAINTENANCE AND REPAIR .BJOUFOBODF� BOE� SFQBJS programs help customers keep purchased products in good working order. These services are critical in business-to-business settings. Goodyear’s TVTrack program helps its fleet customers monitor and manage tires more effectively.17 Many firms offer online technical support, or “e-support,” for customers, who can search an online database for fixes or seek online help from a technician. Appliance makers such as LG, Kenmore, and Miele have introduced products that can transmit self-diagnostic data over the phone to a customer service number that electronically describes the nature of any technical problems.18

Makers of luxury products especially recognize the importance of a smooth repair process. Although Movado watches are high-end, its repair process had been anything but, requiring time-consuming manual labor and customer inconvenience. Recognizing the need to offer more digital services in general, Movado created a Web site where customers can buy products directly from the company as well as execute many of the initial steps in the repair process online, such as registering any problems and identifying possible repair options before contacting customer service directly. The database created by users of the site has also allowed the company to recruit potential focus group participants and identify repair trends that may suggest recurring production problems.19

RETURNS A nuisance to customers, manufacturers, retailers, and distributors alike, product returns are also an unavoidable reality of doing business, especially in online purchases. Free shipping, growing more popular, makes it easier for customers to try out an item, but it also increases the likelihood of returns.

Returns can add up. One estimate is that 10 percent to 15 percent of overall holiday sales come back as returns or exchanges, and the total annual cost may be $100 billion.20 To the consumer, returns can be inconvenient, embarrassing, or difficult to complete. Returns have a downside for merchants too, when the returned merchandise is not in re-sellable condition, lacks proper proof of purchase, or is returned to the wrong store. It may even be used or stolen. Yet if the merchant is reluctant to accept returns, customers can become annoyed.21

Of course, product returns do have an upside. Physically returning a product can get the consumer into the store, maybe for the first time. One research study found that a lenient return policy left customers more willing to make other purchases and refer the company to others.22

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We can think of product returns in two ways:23

t� $POUSPMMBCMF� SFUVSOT result from problems or errors made by the seller or customer and can mostly be eliminated with improved handling or storage, better packaging, and improved transportation and forward logistics by the seller or its supply chain partners.

t� 6ODPOUSPMMBCMF� SFUVSOT result from the need for customers to actually see, try, or experience products in person to determine suitability and can’t be eliminated by the company in the short run.

One basic strategy is to eliminate the root causes of controllable returns while developing processes for handling uncontrollable returns. The goal is to have fewer products returned and put a higher percentage back into the dis- tribution pipeline to be sold again. San Diego-based Road Runner Sports, which sells running shoes, clothing, and equipment through multiple stores, catalogs, and a Web site, trains its salespeople to be as knowledgeable as pos- sible in order to recommend the right products. As a result, its return rate on running shoes has been 12 percent, noticeably below the industry average of 15 percent to 20 percent. 24

Design As competition intensifies, design offers a potent way to differentiate and position a company’s products and services. %FTJHO is the totality of features that affect the way a product looks, feels, and functions to a consumer.

It  offers functional and aesthetic benefits and appeals to both our rational and emotional sides.25

desIGn Leaders As holistic marketers recognize the emotional power of design and the importance to consumers of look and feel as well as function, design is exerting a stronger influence in categories where it once played a small role. Herman Miller office furniture, Viking ranges and kitchen appliances, and Kohler kitchen and bathroom fixtures and faucets are among the brands that now stand out in their categories thanks to attractive looks added to efficient and effective performance.26

Some countries have developed strong reputations for their design skills and accomplishments, such as Italy in apparel and furniture and Scandinavia in products designed for functionality, aesthetics, and environmental consciousness. Finland’s Nokia was the first to introduce user-changeable covers for cell phones, the first to have elliptical-shaped, soft, and friendly forms, and the first with big screens, all contributing to its remarkable ascent. When it later failed to innovate its smart-phone designs, its fortunes dramatically declined. Braun, a German division of Gillette, has elevated design to a high art in its electric shavers, coffeemakers, hair dryers, and food processors.

The International Design and Excellence Awards (IDEA) are given each year based on benefit to the user, benefit to the client/business, benefit to society, ecologi- cal responsibility, appropriate aesthetics and appeal, and usability testing. IDEO has been one of the more suc- cessful design companies through the years. Then in 2013 Samsung Electronics won 10 awards, 3M  four, and Coway, Lenovo, LG Electronics, Nokia, and PearsonLloyd three each.27 Samsung’s design accomplishments have been a result of a concerted effort.28

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Herman Miller has brought form and function to office furniture with their stylish, well-designed products.

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saMsunG Much of Samsung’s remarkable marketing success comes from innovative new products that have captured the imagination of consumers all over the world. The company has invested heavily in R&D and in design capabilities, with big payoffs. It has a clear design philosophy it calls “Design 3.0,” and an internal design slogan, “Make it Meaningful,” that reflects its relentless focus on making beautiful and intuitive products that will be integrated into customers’ lifestyles. Samsung applies three design criteria: (1) simple and intuitive, (2) efficient and long-lasting, and (3) adaptive and engaging. Like its chief rival Apple, the company organizes its design efforts through a cross-divisional Corporate Design Center that reports directly to the CEO. The Corporate Design Center aligns the design efforts of various divisions and analyzes cultural trends to help forecast the future of design. It also coordinates the work done at Samsung’s five Global Design Centers, located in London, San Francisco, Shanghai, Tokyo, and Delhi. Among the many awards the company has received for design were two IF Gold Awards in 2013—from one of the world’s top three design contests— for its “split concept” color printer and its twin-tub washing machine especially designed for Southeast Asia users.

Power of desIGn In a visually oriented culture, transmitting brand meaning and positioning through design is critical. “In a crowded marketplace,” writes Virginia Postrel in 5IF�4VCTUBODF�PG�4UZMF “aesthetics is often the only way to make a product stand out.”29

Design is especially important with long-lasting durable goods such as automobiles. As GM’s VP of Design Ed Welburn notes, “. . . every car has its own mood, whether it’s a van for India or a Cadillac for China, and needs to connect with customers at an emotional level.” The GM design team for the 2011 plug-in electric Chevy Volt wanted to make sure the car looked better than other electric cars. As the Volt design director said, “Most electric cars are like automotive Brussels sprouts. They’re good for you, but you don’t want to eat them.”30

Design can shift consumer perceptions to make brand experiences more rewarding. Consider the lengths Boeing went to in making its 777 airplane seem roomier and more comfortable. Raised center bins, side luggage bins, divider panels, gently arched ceilings, and raised seats make the aircraft interior seem bigger. One design engineer noted, “If we do our jobs, people don’t realize what we have done. They just say they feel more comfortable.”

aPProaches to desIGn “Design is more than just creativity, or a phase in creating a product, service, or application. It’s a way of thinking that can transform an entire enterprise.”31 Design should penetrate all aspects of the marketing program so all design aspects work together. To the company, a well-designed product is easy to manufacture and distribute. To the customer, it is pleasant to look at and easy to open, install, use, repair, and dispose of. The designer must take all these goals into account.32

Given the creative nature of design, it’s no surprise there isn’t one widely adopted approach. Some firms employ formal, structured processes. %FTJHO� UIJOLJOH is a very data-driven approach with three phases: observation, ideation, and implementation. Design thinking requires intensive ethnographic studies of consumers, creative brainstorming sessions, and collaborative teamwork to decide how to bring the design idea to reality. Whirlpool used design thinking to develop the KitchenAid Architect Series II kitchen appliances with a more harmonized look than had existed in the category.33 Not everyone employs design thinking, however.34

BanG & OLufsEn The Danish firm Bang & Olufsen (B&O)—which has received many kudos for the design of its stereos, TV equipment, and telephones—trusts the instincts of a handful of designers who rarely con- sult with consumers. The company does not introduce many new products in any given year, so each one is expected to be sold for a long time. Its BeoLab 8000 speakers sold for $3,000 a pair when introduced in 1992 and retailed for more than $5,000 almost 20 years later. When the company was the subject of a special exhibition at the Museum of Modern Art in New York City, the museum noted, “Bang & Olufsen design their sound equipment as beautiful objects in their own right that do not inordinately call attention to themselves.” Today, 15 B&O products are part of MOMA’s permanent design collection.

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Luxury Products Design is often an important aspect of luxury products, though these products also face some unique issues. They are perhaps one of the purest examples of the role of branding because the brand and its image are often key competitive advantages that create enormous value and wealth. Marketers for luxury brands such as Prada, Gucci, Cartier, and Louis Vuitton manage lucrative franchises that have endured for decades in what some believe is now a $270 billion industry.35

characterIzInG LuxurY Brands Significantly higher priced than typical items in their categories, luxury brands for years were about social status and who a customer was—or perhaps wanted to be. Times have changed, and especially in the aftermath of a crippling recession, luxury for many has become more about style and substance, combining personal pleasure and self-expression.36

A luxury shopper must feel he or she is getting something truly special. Thus the common denominators of luxury brands are quality and uniqueness. A winning formula for many is craftsmanship, heritage, authenticity, and history, often critical to justifying a sometimes extravagant price. Hermès, the French luxury leather-goods maker, sells its classic designs for hundreds or even thousands of dollars, “not because they are in fashion,” as one writer put it, “but [because] they never go out of fashion.”37 Here is how several luxury brands have become endur- ing market successes:

t� 4VC�;FSP�SFGSJHFSBUPST� Sub-Zero sells refrigerators that range from $1,600 for small, under-counter models to $12,000 for a specialty Pro 48 with a stainless steel interior. The target is customers with high standards of performance and design who cherish their home and what they buy to furnish it. Sub-Zero extensively surveys this group as well as the kitchen designers, architects, and retailers who recommend and sell its products.38

t� 1BUSØO�UFRVJMB� Cofounded by Paul Mitchell hair care founder John Paul DeJoria, Patrón came about after a 1989 trip to a distillery in the small Mexican state of Jalisco. Named Patrón to convey “the boss, the cool guy,”

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With its unique product formulation and bottle, Patron pioneered the high end tequila market.

the smooth agave tequila comes in an elegant hand-blown decanter and is sold in individually numbered bottles for $45 or more. Essentially creating the high-end tequila market, with more than $1.1 billion in retail sales, Patrón has surpassed Jose Cuervo to become the world’s largest tequila brand.39

t� .POUCMBOD�MVYVSZ�HPPET� The goal of Montblanc, whose products now range from pens to watches to leather goods and fragrances, is to be a strong luxury brand to as many classes of luxury customers as possible, while still retaining a prominent public image. The brand promise is that “the product you buy is of highest esteem, based on its timeliness, elegant design and the high quality, which is derived from the excellence of our craftsmen.” The company branched out from its origins in writing instruments into categories such as leather goods and timepieces, where it could “rely on the trust of our customers, who believed in Montblanc as a brand that provides excellence in its core category writing instruments based on its philosophy of manufacturing competence, highest quality, sustainable value and creativity.”40

GrowInG LuxurY Brands The recent recession challenged many luxury brands as they tried to justify their value proposition and avoid discounting their products.41 Those that had already successfully extended their brands vertically across a range of price points were usually the most immune to economic downturns.

The Armani brand has extended from high-end Giorgio Armani and Giorgio Armani Privé to mid-range luxury with Emporio Armani to affordable luxury with Armani Jeans and Armani Exchange. Clear differentiation exists between these brands, minimizing the potential for consumer confusion and brand cannibalization. Each also lives up to the core promise of the parent brand, reducing chances of hurting the parent’s image.

Horizontal extensions into new categories can also be tricky for luxury brands. Even the most loyal consumer might question a $7,300 Ferragamo watch or an $85

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SETTING PRODUCT STRATEGY | CHAPTER 13 399

bottle of Roberto Cavalli vodka. Jewelry maker Bulgari has moved into hotels, fragrances, chocolate, and skin care, prompting some branding experts to deem the brand overstretched.42 In the past, iconic fashion designers Pierre Cardin and Halston licensed their names to so many ordinary products that the brands were badly tarnished.

Ralph Lauren, however, has successfully marketed an aspirational luxury brand with wholesome all-American lifestyle imagery across a wide range of products. Besides clothing and fragrances, Lauren boutiques sell linens, candles, beds, couches, dishware, photo albums, and jewelry. Calvin Klein has adopted a similarly successful expansive strategy, though with different lifestyle imagery.

Much of the growth in luxury brands in recent years has been geographical. China has overtaken the United States as the world’s largest luxury market; it’s forecast that one-third of all high-end goods will be sold there in the coming years. Although initially very “logo-driven” and interested in conspicuous brand signals, Chinese luxury consumers have also become more quality and design conscious, like luxury consumers in other parts of the world.43

marketInG LuxurY Brands Luxury marketers have learned that luxury is not viewed the same way around the world. In post-communist Russia for a time, as in China, the bigger and gaudier the logo, the better. But in the end, luxury brand marketers have to remember they are often selling a dream, anchored in product quality, status, and prestige.

Just like marketers in less expensive categories, those guiding the fortunes of luxury brands operate in a constantly evolving marketing environment. Globalization, new technologies, financial crises, shifting consumer cultures, and other forces require them to be skillful and adept at their brand stewardship to succeed. Table 13.1 summarizes some key guidelines in marketing luxury brands.

One trend for luxury brands is to wrap personal experiences around the products. Top-end fashion retailers are offering such experiences alongside their wares, expecting that customers who have visited a workshop or met the designer will feel closer to the brand. Gucci is inviting its biggest spenders to fashion shows, equestrian events, and the Cannes Film Festival.44

Porsche Sport Driving Schools and Experience Centers in Germany, the United States, and other parts of the world allow Porsche drivers to “train their driving skills and enjoy the all-out pleasure of driving, on-road, off- road, or on snow and ice.” The recently opened state-of-the-art facility in Southern California features 45-degree off-road inclines and a simulated ice hill.45

TABLE 13.1 Guidelines for Marketing Luxury Brands

1. Maintaining a premium image for luxury brands is crucial; controlling that image is thus a priority. 2. Luxury branding typically includes the creation of many intangible brand associations and an aspirational image. 3. All aspects of the marketing program for luxury brands must be aligned to ensure high-quality products and

services and pleasurable purchase and consumption experiences. 4. Besides brand names, other brand elements—logos, symbols, packaging, signage—can be important drivers of

brand equity for luxury products. 5. Secondary associations from linked personalities, events, countries, and other entities can boost luxury-brand

equity as well. 6. Luxury brands must carefully control distribution via a selective channel strategy. 7. Luxury brands must employ a premium pricing strategy, with strong quality cues and few discounts and

markdowns. 8. Brand architecture for luxury brands must be managed carefully. 9. Competition for luxury brands must be defined broadly because it often comes from other categories. 10. Luxury brands must legally protect all trademarks and aggressively combat counterfeits.

Source: Based on Kevin Lane Keller, “Managing the Growth Tradeoff: Challenges and Opportunities in Luxury Branding,” Journal of Brand Management 16 (March–May 2009), pp. 290–301.

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In an increasingly wired world, some luxury marketers have struggled to find the appropriate online selling and communication strategies for their brand.46 Some fashion brands have begun to go beyond glossy magazine spreads to listening to and communicating with consumers through Facebook, Twitter, Foursquare, and other digital and social media channels. Coach and Tiffany are two luxury brands praised for their Web site and digital operations. E-commerce has also begun to take hold for some luxury brands. Sites such as Gilt Groupe and Ideel now offer new ways for fashion brands to move high-end goods.47

Ultimately, luxury marketers are learning that, as for all marketers, success depends on getting the right balance of classic and contemporary imagery and continuity and change in marketing programs and activities.

Environmental Issues Environmental issues are also playing an increasingly important role in product design and manufacturing. Many firms are considering ways to reduce the negative environmental consequences of conducting business, and some are changing the manufacture of their products or the ingredients that go into them. “Marketing Memo: A Sip or a Gulp: Environmental Concerns in the Water Industry” considers some of the environmental issues raised by the sale of bottled water.

In a fascinating twist, Levi-Strauss found a highly creative way to address the problem of proliferating plastic bottles.48

LEVi’s WastE<LEss If someone said your jeans were “made of garbage,” you might be insulted, but not if they were made by Levi-Strauss. Levi’s new “Waste<Less” jeans and jackets carry a clothing tag that says exactly that—because they are! Twenty percent of the material in the denim comes from plastic bottles and black food trays re- cycled from municipal sites, including about eight 12- to 20-ounce bottles per pair. Much research and development went into creating the Waste<Less line, for which the plastic is cleaned, sorted, shredded into flakes, and made into a polyester fiber that’s then blended with cotton. The resulting fabric looks and feels like traditional denim except for the color of the underside, which varies according to the hue of the plastic. The jeans retail for $69 to $128. Levi’s is not a newcomer to the market for environmentally friendly products; sustainability is a company-wide priority. “Water<Less” jeans helped farmers grow cotton with less water, let Levi’s manufacture with less water, and educated consumers about cleaning and disposing of the garments with less water. Both lines have made a tangible difference: The Water<Less line saved more than 360 mil- lion liters of water in its first full year, while the Waste<Less line recycled 3.5 million bottles and trays in its first full year.